Indonesian economy expands slightly below expectations in Q1, BI to keep rates on hold

Indonesian economy expanding marginally lower than anticipated in the first quarter of this year. On a year-on-year basis, the Indonesian economy grew 5.06 percent year-on-year, as compared with market expectations of 5.19 percent. Gross fixed investment gave an expected stimulus to the overall growth, rising 7.95 percent year-on-year from 7.27 percent in the fourth quarter.

In the meantime, total private consumption recorded another quarter of lacklustre growth of 5.01 percent, widely unchanged from the reading in the earlier quarter. Government consumption also eased to 2.73 percent from 3.81 percent in the fourth quarter. Domestic demand recorded its most rapid rise in 13 quarters with growth of 6.34 percent year-on-year. In the meantime, the overall trade deficit broadened.

The wider trade deficit resulted in a larger drag from net exports on overall GDP growth. According to an ANZ research report, the negative contribution of net exports have risen to 1.13 percentage points from 0.57 percentage points previously.

“Looking ahead, we still expect average 2018 growth at 5.30 percent, within the central bank’s 5.10-5.50 percent growth projection. We expect further improvement in investment and fiscal spending to prop up domestic demand”, stated ANZ.

Yet, without a considerable change in private consumption, inflationary pressures are likely to stay manageable. Bank Indonesia is expected to keep its policy rate on hold at 4.25 percent in spite of rising external risks.

“In our view, the central bank has room to maintain a supportive stance before it commences its hiking cycle in the latter half of 2019”, added ANZ.

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